GLOBAL FX MARKET SUMMARY: Weak US Retail Sales, Risk Sentiment, ECB: MAY 15 ,2024

US inflation cools, spending slows. This improves risk appetite and weakens USD. ECB hints at rate cuts, potentially boosting EUR vs USD.

  1. Disinflationary pressures in the US:


Lower inflation expectations:  Lower than anticipated April CPI data suggests inflation might be peaking and future price increases will be smaller. This could lead the Fed to adjust its policy towards containing inflation, potentially slowing down interest rate hikes or even cutting rates.


  1. Weak US Retail Sales:


Slowdown in consumer spending: Flat April retail sales data indicates consumers are spending less compared to prior expectations. This could be due to rising prices or other economic factors, and it suggests a potential slowdown in economic growth. Lower consumer spending can reduce demand and inflationary pressures in the economy.


  1. Improved risk sentiment:


Lower inflation expectations: As mentioned earlier, lower inflation strengthens the belief that the Fed can ease back on tightening policies. This creates a more favorable environment for riskier assets like stocks, leading to a rise in stock prices.

Weaker USD: A weakening USD makes other currencies like the EUR relatively stronger. When the USD weakens, foreign goods become cheaper for US consumers, potentially boosting imports and impacting trade balances.


  1. ECB policy expectations:


Potential rate cuts in the Eurozone:  ECB Governing Council member Wunsch hinting at potential rate cuts suggests the ECB might take a more dovish approach compared to the hawkish stance of the Fed (raising interest rates). This interest rate differential can influence currency valuations. When the ECB cuts rates, the Euro becomes less attractive for yield-seeking investors, potentially weakening it. However, in the current scenario, the potential for future cuts might be seen positively compared to the Fed’s tightening stance, leading to a stronger Euro relative to the USD.


Top 5 Economic Events (Based on Impact):

  1. Japan GDP Data (May 15th, 23:50): This includes Gross Domestic Product (QoQ), Annualized GDP, and GDP Deflator (YoY). These figures provide a comprehensive picture of Japan’s economic growth and inflation. (High Impact on JPY)
  2. Australia Employment Change (May 16th, 01:30): This report includes Employment Change, Unemployment Rate, Participation Rate, Full-Time Employment, and Part-Time Employment. It’s a crucial indicator of Australia’s labor market health. (High Impact on AUD)
  3. China Industrial Production & Retail Sales (May 17th, 02:00): This data release includes Industrial Production (YoY) and Retail Sales (YoY). These figures reveal the health of China’s manufacturing sector and consumer spending, impacting global economic growth. (High Impact on CNY)
  4. EU Consumer Price Index (May 16th, 08:00): This includes Consumer Price Index (MoM), Consumer Price Index (YoY), Harmonized Index of Consumer Prices (MoM), Harmonized Index of Consumer Prices (YoY), and Core Harmonized Index of Consumer Prices (MoM & YoY). This data reflects inflation in the Eurozone, influencing monetary policy decisions by the ECB. (Medium Impact on EUR)
  5. Speeches by Fed Officials (May 15th & 16th): Speeches by Kashkari, Bowman, Barr, Harker, Mester, and Bostic can provide insights into the Federal Reserve’s views on the economy and future interest rate decisions. These can impact the US Dollar (USD) and other currencies. (Medium Impact on USD)


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